Estate planners talk finances for same-sex couples

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A group of Nevada County attorneys, certified financial planners and estate strategists convened at a Grass Valley restaurant Wednesday to discuss how the prospect of same-sex marriage affects the finances of their customers.

“We may have decisions very soon that could affect estate taxes in this area,” said Jennifer Wilkerson, an attorney, who led the discussion in tandem with Janet Peake, a financial planner.

The U.S. Supreme Court is expected to rule this summer on the constitutionality of the Defense of Marriage Act, a 1996 law that defines marriage as between a man and a woman regarding federal benefits with oral arguments scheduled to begin March 27.

While the legality of gay marriage tends to be seen through a moral or religious prism, for the 25 people attending the Gold Country Estate Planning Council’s meeting at Christopher’s Old World Deli Wednesday, the discussion focused solely on the logistical challenges of financial planning of nontraditional couples who don’t qualify for legal status of a spouse.

The topic was timely, considering the U.S. constitutionality of DOMA comes into question, in part, through the U.S. v. Windsor case.

“I just find it so interesting that estate tax issues will determine the legality of same-sex couples,” Wilkerson said.

Edie Windsor and Thea Spyer shared their lives together as a couple in New York City for 44 years, according to the American Civil Liberties Union.

The couple married in Canada in May 2007, four decades after their formal engagement.

Two years after their marriage, Spyer passed away following decades of multiple sclerosis, which led to progressive paralysis, the ACLU notes.

When Spyer died, the federal government did not recognize their marriage and taxed Windsor’s inheritance from Spyer, as though they were strangers, according to the ACLU, whereas, a legally defined spouse who dies can leave her assets, including the family home, to the other spouse without incurring estate taxes under federal law.

In October 2012, a federal appeals court declared DOMA unconstitutional. That December, the Supreme Court agreed to hear Windsor’s challenge.

The discussion among the Nevada County financial planners Wednesday focused on how to deal with these kinds of situations from a financial planning perspective, as well as what to expect if DOMA is declared unconstitutional.

“I don’t have any idea how to protect them,” Peake said.

Same-sex couples have to file two separate federal income tax returns, Peake said, as well as a litany of more complicated filings for assets, deductions and other financial disclosures that legal spouses are able to file in a more simple manner.

“It is just a tangled mess …” Peake said. “I really hope the law is overturned so we don’t have to do the returns this way.”

Where divorce proceedings are a relatively simple procedure, dissolving a same-sex relationship when there are assets to be divided is a complicated procedure.

If one member of the dissolved couple simply gives an asset to the other, it is subject to gift taxes, Peake said.

“That’s a biggy,” she said.

Who is authorized to make a decision in the event of incapacity does not pertain to unmarried couples, Peake pointed out.

Custody of a child is even more complicated, Wilkerson said, as a child that is raised by a same-sex couple could be sent to a previously absent parent.

Same-sex couples also are denied Social Security and veterans benefits of their spouses, something Peake noted was interesting considering the recent dissolution of the military’s Don’t Ask, Don’t Tell policy.

“It is harder for them to plan,” Peake said. “There are so many issues they have to deal with.”

Despite a mountain of difficulty, a few opportunities exist for same-sex couples under current law, the two women said.

While a legally married couple must both file the same deduction type (itemized or standard) when filing their taxes, a not legally recognized couple can “double-dip,” Peake noted.

“There are a few opportunities here and there if you are not a spouse,” Wilkerson said.

California’s Proposition 8, which legally defined marriage as a union between a man and a woman only months after the state Supreme Court ruled same-sex marriage legal, is a companion case of Windsor under consideration by the U.S. Supreme Court, Wilkerson said.

While only nine states have legalized gay marriage, several November 2012 polls found that a majority of Americans support same-sex marriage.

Prop. 8 passed with 52 percent approval of Nevada County voters in 2008.

During the six months before Prop. 8 repealed same-sex marriage, about 18,000 Californians took advantage of the ruling, Wilkerson said.

While Peake and Wilkerson did not take a position on same-sex marriage during their presentation to the estate planning council members, they did express some concern that same-sex couples are not aware of the mountain of filings they need to do.